According to Austrian Business Cycle Theory, the economy gets distorted in favor of the capital goods sector whenever money is printed. The money flows into the capital goods sector and distorts the structure of the economy away from consumer goods and towards capital goods .

For example, if the Federal Reserve prints up $100 billion dollars on a base of a trillion dollar money supply (a 10% increase in money supply), this will distort the economy in favor of the capital goods sector by $100 billion dollars. But, this money eventually works its way through the economy with prices being bid up so that in order to maintain the distorted capital goods structure, the Fed will next have to print up $100 billion plus. It must be a $100 billion plus because the structure needs to be maintained and the increase in prices must be adjusted for to maintain the structure.

If the Fed only prints on the second round $50 billion (a 4.5% increase over the new $1.1 trillion in money supply), this will not be enough buying power to maintain the earlier Fed manipulated $100 billion capital goods structure--even though it is an absolute increase in money supply.

Thus, it is very necessary to know the percentage of new money that is being printed rather than just whether new money is coming into the system. As can be seen by the charts, the Fed is almost always printing money, but it is much more erratic in the percentage of new money that it adds to the system. Just watching absolute money growth, without reference to percentage change will not provide any clue as to whether the Fed is shrinking or expanding the capital structure it is manipulating and thus provide no clue as to whether we are headed for a downturn or Fed manipulated boom.